Are the development rights in Big Blue Swim School's DRAs distinct from franchise agreements?
Big_Blue_Swim_School Franchise · 2025 FDDAnswer from 2025 FDD Document
are not brand-specific, is recognized ratably as those services are rendered.
Initial and renewal franchise fees allocated to the right to access the Company's intellectual property are recognized as revenue on a straight-line basis over the term of the respective franchise agreement. DRAs consist of an obligation to grant the right to open two or more units. These development rights are not distinct from franchise
BIG BLUE SWIM SCHOOL FRANCHISING, LLC (A Limited Liability Company) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2024, 2023 AND 2022
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue recognition (continued)
Franchise fees (continued)
agreements;
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 75)
What This Means (2025 FDD)
According to the 2025 Big Blue Swim School FDD, the development rights granted in Development Rights Agreements (DRAs) are not considered distinct from the franchise agreements themselves. This means that when Big Blue Swim School receives upfront fees for these development rights, they don't recognize the entire fee immediately. Instead, they defer the fee and spread it out over each individual franchise agreement that the developer signs.
For a prospective Big Blue Swim School franchisee, this accounting practice has implications for how the franchisor recognizes revenue. Since the development rights are tied to the franchise agreements, the fees associated with those rights are recognized gradually as each franchise unit is opened and operates. This approach aligns the revenue recognition with the actual performance and operation of the franchised units.
This accounting treatment is important for franchisees to understand because it reflects how Big Blue Swim School views its relationship with multi-unit developers. Rather than treating the development rights as a separate, distinct product, they are integrated into the overall franchise agreement. This suggests that the ongoing support and operation of the franchise units are key to the franchisor's revenue model.